One of the many lawsuits dogging student loan giant Sallie Mae Navient Lawsuit will move forward after a judge shot down the company’s request to have the suit dismissed.
In the 70-page opinion released earlier this week as part of a lawsuit filed by Pennsylvania Attorney General Josh Shapiro, U.S. district court judge Robert Mariani called Navient’s arguments to dismiss the case at times “legally deficient,” “mistaken” and “creative,” but ultimately unconvincing.
What’s more, the court noted it wasn’t persuaded by a memo written earlier this year by Secretary of Education Betsy DeVos meant to shield student loan companies from state laws.
The opinion comes as Sallie Mae Navient Lawsuit is facing a handful of similar lawsuits from other states, including California and Illinois as well as the Consumer Financial Protection Bureau.
“This was a devastating opinion to Navient’s case,” Jiménez said, adding that “it could be quite influential.”
Navient declined to comment on the opinion.
The company has previously said that the allegations in the lawsuit and other similar claims are false. Shapiro said in a statement that the court’s decision, “brings us one step closer in our fight to provide justice to the students and families in Pennsylvania.”
In his suit, Shapiro alleges Navient violated Pennsylvania state law by steering borrowers towards costly repayment programs. He also alleges that Sallie Mae Navient Lawsuit corporate predecessor, Sallie Mae, deceptively offered risky, subprime loans to borrowers as a way to gain access to more lucrative federal student-loan volume.
But Navient and other student-loan servicers have relied on the concept of preemption — the idea that federal law supersedes state law in cases where they’re in conflict — to argue that they’re not subject to these consumer protection regulations. DeVos’s memo, which she published in March, aimed to bolster that argument.
But in other cases, judges have taken a different approach; a U.S. district court judge for the Northern District of Florida granted a different servicer’s motion to dismiss a case resting on similar arguments. That decision is now being appealed.
The divide among lower courts means that the debate over whether student loan companies are subject to state law will continue, said David Rubenstein, a professor at Washburn University School of Law.
Courts are reaching different results because the preemption question turns on a judicial assessment of what the enacting Congress intended Sallie Mae Navient Lawsuit when it passed the statutory language at issue, but that language is ambiguous in key respects, Rubenstein said.
“The split in the lower portends a likely split in the appellate courts as well, which can be a factor that the Supreme Court can take into account when deciding whether to hear this controversy,” he said.
In asking the court to dismiss the state’s case, Sallie Mae Navient Lawsuit attorneys argued that the state’s student-loan servicing allegations are preempted by the Higher Education Act — the statute that governs higher education and financial aid — HEA, both because the law governs disclosures made by student-loan companies to borrowers and because it establishes uniform standards among federal student-loan programs. The court said Navient’s interpretation of HEA “goes too far,” arguing that the disclosure provision of HEA, “does not apply to the sort of claims alleged by the Commonwealth,” which include, “allegations of unfair and deceptive conduct.”